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How to Spot a “Charitable Exit” Before It’s Too Late

If you work with business owners, chances are you’ve at least heard of charitable gifts of closely held business interests. But if you haven’t personally facilitated one, you’re not alone—these opportunities don’t come along often. Still, when they do, they can make an enormous difference for your client’s tax strategy and charitable goals.

The key is recognizing when you’ve stumbled upon one of these moments. Once you do, your best move is to reach out early to your community foundation partners so they can help you avoid any problems and potentially stop the exit.

A Case Study in Timing and Strategy

Let’s imagine you have a client named Alex, who has spent decades building his successful business. During a regular meeting with Alex, he casually mentions that he’s thinking about selling the business “sometime soon.” You pay close attention because you know Alex is generally very charitable, giving annually to local and national causes.

You also know the company’s value has grown dramatically. That success has created substantial unrealized capital gains. If Alex sells without a strategy in place, a significant portion of the proceeds will be lost to capital gains tax.

Some owners in this position jump straight into the sale process—testing the market, engaging with potential buyers, or signing a letter of intent—before realizing there might have been smarter ways to structure the transaction. By then, though, it’s too late to take advantage of some of the best planning opportunities.

This is the moment where you can make a difference. Before Alex keeps going, you suggest he speak with the community foundation, and help him explore the idea of a donor-advised fund before any sale discussions or documents are in motion.

Why It Matters to Act Early

The timing of this gift is crucial. By donating shares before a sale is negotiated, Alex receives an immediate charitable deduction for the fair market value of the gifted stock and removes that portion from the taxable estate.

When the company eventually sells, the shares held by the donor-advised fund are sold tax-free—no capital gains triggered for Alex. The proceeds from those shares remain in the donor-advised fund, ready to support Alex’s philanthropic priorities.

The result? More money for charity and less lost to taxes.

Avoiding Common Pitfalls

While the concept is simple, the execution isn’t always. Timing, documentation, and compliance all matter. That’s why early coordination among the client, their advisors, and the community foundation is so important.

The top things you should keep in mind are:

• Qualified appraisal: Gifts of privately held business interests must be backed by a qualified appraisal to substantiate the deduction. Skipping or delaying this step could eliminate the tax benefit altogether.
• Avoid premature sale activity: To preserve the tax advantages, there can’t be any signed letter of intent, shareholder vote, or binding sale discussions before the gift occurs. The IRS takes this sequence seriously, and missing the window could disqualify the deduction.
• Public charity vs. private foundation: For tax purposes, donating to a public charity like the community foundation typically provides more deductions and advantages than giving to a private foundation. Not all advisors recognize this distinction, so it can be helpful to remember.

Each of these steps requires coordination and review, which is why the community foundation’s due diligence process is so valuable. They’ll confirm that the proposed gift is both compliant and feasible.

When Opportunity Knocks

You may only have a few exits come up over your whole career, but the impact of even one or two can be huge for your client and the community.

Maybe that opportunity appears next week when a longtime client mentions receiving interest from a buyer. Or maybe it’s years from now when another client starts succession planning. Either way, when you hear the first hints of a possible sale from a charitably inclined business owner, that’s your cue to make the call.

The community foundation can walk you through the steps, review the structure, and help your client turn what could have been a highly taxed transaction into a legacy of generosity and impact.